Peter is planning to marry Ann on 12 September 2023. To make sure there were enough funds to pay for the wedding and the honeymoon, Peter sold the following assets:
The CPI numbers are:
March 1989 51.7
September 1999 68.1
Peter has capital losses he is carrying forward from previous years of $19,000 from the sale of an antique and $10,000 from the sale of some shares. Peter received a gross salary of $164,000 from his employment as an auditor and he has deductions of $750 for his CPA membership and $5,000 for his professional indemnity insurance. He is self employed and works under his ABN. He also paid $15,000 as a personal superannuation contribution. He paid a total of $25,000 as PAYG Instalments during the financial year.
REQUIRED
| Resident tax rates 2022-23 | |
| Taxable income | Tax on this income |
| 0 – $18,200 | Nil |
| $18,201 – $45,000 | 19 cents for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5 cents for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37 cents for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45 cents for each $1 over $180,000 |
The above rates do not include the Medicare levy of 2%.
In the pursuit of financing his impending wedding and honeymoon, Peter decided to liquidate several assets. This essay comprehensively analyzes each of these transactions and calculates Peter’s net capital gain or loss for the fiscal year ending on 30 June 2023. Additionally, the essay computes his resulting tax liability, taking into account the applicable resident tax rates for 2022-23.
Holiday House: Peter’s holiday house was sold for $650,000, with an acquisition cost of $350,000 in 1989. Adjusted for CPI, the acquisition cost becomes approximately $757,960 (350,000 * 68.1 / 51.7). Total Acquisition Cost = Adjusted Cost + Stamp Duty + Legal Fees = 757,960 + 20,000 = $777,960 Capital Improvement (second bathroom) = $15,000 Total Costs = Total Acquisition Cost + Capital Improvement = 777,960 + 15,000 = $792,960 Capital Gain = Selling Price – Total Costs = 650,000 – 792,960 = -$142,960 (capital loss) Since the property was rented, only a proportionate part of the expenses can be claimed as a tax deduction. However, Peter already claimed $15,000 in 2008, so no further deduction is available.
Vacant Land: The vacant land was sold for $500,000, with an original cost of $100,000 in 1984. Adjusted for CPI, the cost becomes approximately $163,918 (100,000 * 68.1 / 51.7). Capital Gain = Selling Price – Adjusted Cost = 500,000 – 163,918 = $336,082
Painting: Capital Gain = Selling Price – Purchase Price = 30,000 – 20,000 = $10,000
Insurance Proceeds for Horse: Capital Gain = Insurance Proceeds – Purchase Price = 16,000 – 6,000 = $10,000
BHP Ltd Shares: Capital Gain = Selling Price – Purchase Price = 90,000 – 45,000 = $45,000
2-Bedroom Unit: The unit was purchased for $385,000 in 2012. Adjusted for CPI, the cost becomes approximately $446,728 (385,000 * 68.1 / 51.7). Capital Gain = Selling Price – Adjusted Cost = 555,000 – 446,728 = $108,272
Vintage Morris Motor Car: Capital Gain = Selling Price – Purchase Price = 68,000 – 25,000 = $43,000
Net Capital Gain = Capital Gains – Capital Losses = (336,082 + 10,000 + 10,000 + 45,000 + 108,272 + 43,000) – (19,000 + 10,000) = $524,354
Taxable Income Calculation: Gross Salary + Net Capital Gain = 164,000 + 524,354 = $688,354
Tax Calculation: Tax Bracket 1: 18,200 * 0% = $0 Tax Bracket 2: (45,000 – 18,200) * 0.19 = $5,557.80 Tax Bracket 3: (120,000 – 45,000) * 0.325 = $24,375 Tax Bracket 4: (180,000 – 120,000) * 0.37 = $22,200 Tax Bracket 5: (688,354 – 180,000) * 0.45 = $242,259.70 Total Tax = 5,557.80 + 24,375 + 22,200 + 242,259.70 = $294,392.50
Including Medicare Levy (2%): Medicare Levy = 688,354 * 0.02 = $13,767.08
Final Tax Payable: Total Tax + Medicare Levy = 294,392.50 + 13,767.08 = $308,159.58
In conclusion, after analyzing Peter’s various asset transactions, including property sales, investments, and personal items, it is determined that he has a net capital gain of $524,354 for the fiscal year ending on 30 June 2023. As per the resident tax rates of 2022-23, Peter’s taxable income of $688,354 incurs a tax liability of $308,159.58, including the Medicare levy. This analysis provides a comprehensive understanding of Peter’s financial situation in relation to capital gains and tax obligations for the specified year.
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